State report outlines holdings of slots casino contenders

Monday

Jul 15, 2013 at 6:00 AMJul 15, 2013 at 10:48 AM

By Susan Spencer , TELEGRAM & GAZETTE STAFF

The state Gaming Commission's clearance of two slots parlor applicants' background checks Thursday offered a peek into the vast holdings of casino developers as well as a hint of operational and structural concerns that regulators should look out for when the sole slots license is awarded this winter.

In particular, both applicants' parent companies had experienced some problems with minors under age 21 or self-excluded individuals being admitted or invited to other casinos they operate. And corporate oversight structures needed tightening.

At its public meeting held at the Boston Convention and Exhibition Center last week, commissioners unanimously qualified Mass Gaming & Entertainment LLC, a subsidiary of Chicago-based Rush Street Gaming, and PPE Casino Resorts MA LLC, affiliated with the Baltimore-based Cordish Co.

Rush Street Gaming/MGE will unveil its conceptual plan for a $200 million slots parlor in Millbury, most likely off Route 146 near the Mass Pike, at the town Planning Board meeting Monday night.

Cordish Co./PPE told the Leominster City Council last week it hoped to develop a 120,000-square-foot slots parlor with a gambling floor and three restaurants in the Jungle Road area near Route 117.

The two Central Massachusetts slots parlor applicants are up against Plainridge Racecourse in Plainville, Raynham Park and a new proposal from Penn National Gaming for a slots casino in Tewksbury.

According to the state gaming law, slots casino applicants must have host community agreements signed by July 26, local voters must approve the agreement in a referendum by October, and phase 2 applications detailing site operations must be submitted by Oct. 4.

The commission will award the slots license as early as December, if there are no surrounding community disputes, or as late as February, if arbitration is required with surrounding communities.

On a separate track, qualifiers for resort casinos, such as the 660,000-square-foot complex proposed by Foxwoods in Milford, must file their phase 2 applications by the end of December for a regional license to be awarded in late winter or early spring.

The Gaming Commission's Investigations and Enforcement Bureau worked with casino-industry consultants and a team including state police, retired FBI agents, gaming financial specialists and lawyers, among others, to examine tax returns, financial and business backgrounds, criminal and civil litigation histories and a host of other data to determine qualifiers' suitability for proceeding to phase 2 of the application process.

The 211-page report filed with the commission found that both applicants met the gaming legislation's criteria for suitability.

Both the Millbury and Leominster applicants' parent companies hold significant assets, although dollar amounts were redacted from the public version of the report.

Neil G. Bluhm, the key principal in Millbury applicant MGE and chairman of Rush Street Gaming, is the patriarch of the Bluhm family real estate and expanding casino gaming empire, according to the report. His portfolio has included several notable properties in Massachusetts, such as former ownership of Copley Place in Boston, capitalization of Faneuil Hall and other downtown Boston projects.

Rush Street Gaming and its related entities developed and manage the $1 billion (Canadian) Fallsview Casino Resort in Niagra Falls, Ontario, and hold a management contract for the nearby Casino Niagra, also in Niagra Falls.

Under Canadian licensing rules, the Province of Ontario owns the casinos. The company currently owns three casinos in the United States, including the SugarHouse Casino in Philadelphia, Rivers Casino in Pittsburgh and Rivers Casino in Des Plaines, Ill. It sold its Riverwalk Casino, in Vicksburg, Miss., in October.

Rush Street Gaming Chief Executive Officer Gregory A. Carlin holds an ownership interest along with Neil Bluhm and various trusts in MGE. David G. Patent, the chief operating officer and president of Rush Street Gaming, will be the key manager and principal in developing the Millbury project, according to the report.

Mr. Patent will oversee local management and, in turn, report to Mr. Carlin, who will report to Mr. Bluhm.

Mr. Patent does not hold an ownership interest.

The Investigations and Enforcement Bureau didn't discover any disqualifying factors that would prevent MGE from being issued a casino license, but it raised concerns that Mr. Carlin, a member of Rush Street Gaming management, also serves on the audit committees of the two Pennsylvania casinos the company owns.

"The presence of management personnel on the audit committee raises a potential conflict of interest – management overseeing itself," the report concludes. "For this reason, IEB recommends that the applicant be required to re-structure its audit committees of any of its related entities that conduct business in Massachusetts to replace any management personnel with independent representatives."

The bureau also expected MGE to rigorously enforce procedures to prevent access to underage individuals and people who have excluded themselves from the casino because of problem gambling. In 2012, it was fined $25,000 for incidents involving self-excluded individuals at its Des Plaines casino.

From 2010 to November 2012, Rush Street Gaming paid $246,000 in fines for 15 underage incidents and $5,000 in a self-exclusion violation at its Pittsburgh casino. And in 2011 and 2012 it paid $70,000 for seven underage incidents and $25,000 for five self-exclusion violations at its Philadelphia facility.

PPE Casino Resorts MA LLC was created in January to facilitate the entry of the Cordish Co. into the Massachusetts gaming market, according to the commission report.

Joseph S. Weinberg is the managing member and other interests are held by Jonathan A. Cordish, Blake L. Cordish, Reed S. Cordish and Charles F. Jacobs.

A major real estate developer and operator of entertainment/mixed-use venues, the Cordish Co. developed two Hard Rock Hotel and Casino complexes for the Seminole Tribe of Florida, in Tampa and Hollywood, and developed and managed from 2008 to 2010 the Indiana Live! casino in Shelbyville, Ind., for Indianapolis Downs.

Cordish Co. has operated another casino, Maryland Live!, in Baltimore since June 2012.

The commission found some red flags in the company's previous gaming operations, but nothing that would prevent Massachusetts gaming officials from finding the applicant suitably qualified.

Indianapolis Downs notified Cordish in 2010, just three years into its 10-year development and management agreement, that it would terminate the contract, alleging breach of the agreement.

The casino suffered under a heavy debt load, despite average-to-high revenue for the industry.

Cordish counter-sued and after Indianapolis Downs filed for Chapter 11 bankruptcy in 2011, a settlement was reached in arbitration. The Indiana Gaming Commission, among other enforcement actions, fined Indianapolis Downs $75,000 in 2009 for accounting infractions and under-reporting of $460,000 in casino revenue.

The investigation bureau's report said: "We note that the circumstances of this incident raise some level of concern; however, at this juncture, it appears to be an isolated incident that does not impact on the suitability of the applicant."

Indianapolis Downs was fined $15,000 for three minors having access to the casino and $7,500 for two self-exclusion violations in 2009 and 2010, according to the report.

"The lack of committee minutes impacts effective regulatory oversight, as the minutes serve as a guide for regulators in determining whether the committee has acted in compliance with applicable laws and regulations," the report said.

Contact Susan Spencer at susan.spencer@telegram.com; on Twitter at SusanSpencerTG